Bond Market Update

Buyers Show Restraint

• U.S. Treasuries were lacking buyers today, who exercised restraint in front of the FOMC decision tomorrow. That decision is expected to produce a rate cut and a signal from the Fed that it is unlikely to cut rates again soon—or at least until it feels more comfortable that inflation is moving sustainably toward its 2.0% target. That combination is being dubbed a "hawkish cut," and it weighed on shorter-dated securities today more heavily than longer-dated securities in what was a bear flattener trade. An October JOLTS report that showed more job openings than expected added some fuel to the selling interest. The FOMC decision, which will be accompanied by an updated Summary of Economic Projections (SEP), will be released at 2:00 p.m. ET Wednesday and will be followed by Fed Chair Powell's press conference at 2:30 p.m. ET. The September SEP showed a median projection of one rate cut in 2026. According to the CME FedWatch Tool, the market is expecting two rate cuts in 2026.
• Yield Check:
  • 2-yr: +3 bps to 3.61%
  • 3-yr: +4 bps to 3.65%
  • 5-yr: +3 bps to 3.78%
  • 10-yr: +1 bp to 4.18%
  • 30-yr: unch at 4.81%

• News:
  • Ukraine President Volodymyr Zelensky rules out ceding territory, which is a key part of President Trump's peace plan. Washington Post
  • President Trump, in an interview, was highly critical of Europe and said he could make additional tariff changes to help lower prices. Politico
  • The Reserve Bank of Australia voted unanimously to leave its cash rate unchanged at 3.60%, as expected; however, it was a more hawkish-minded decision, as RBA Governor Bullock reportedly said in the Q&A that rate hikes would need to be considered if inflation remains persistent
  • The House will vote on the defense funding bill on Wednesday. Politico
  • China is buying soybeans again, but short of President Trump's target, according to CNBC
  • Japan's Finance Minister Katayama conveyed an intervention-minded tone, saying the action in the bond market is being closely monitored and that FX moves are concerning.
  • The Bank of Korea, aiming to stabilize rising rates, is making its first bond purchase since 2022.
  • China's President Xi talked up the idea of reinforcing growth momentum, while President Trump said he is going to allow NVIDIA to ship its H200 chips to approved customers in China, with 25% of any sales going to the U.S.
  • France has a key vote today on its social security budget
  • The UK registered some relatively weak retail sales heading into the holiday season
• Today's Data:
  • The October JOLTS report showed 7.670 million job openings versus estimates that were closer to 7.200 million. Job openings in the year-ago period were 7.615 million. Job openings for September were estimated to be 7.658 million based on partial data for businesses that self-reported during the government shutdown and data collected in November after the shutdown.
  • The September Leading Economic Index registered a 0.3% decline following an upwardly revised 0.3% decline (from -0.5%) for August. 
  • The 10-yr note reopening saw the high yield of 4.175% stop on the screws of the when-issued yield (4.175%) in what can be described as an average auction. The 2.55 bid-to-cover ratio was in line with the prior 12-auction average, while the indirect bid and direct bid were both close to their prior 12-auction averages.
• Commodities:
  • WTI crude: -1.0% to $58.26/bbl
  • Gold: +0.5% to $4237.30/ozt
  • Copper: -2.2% to $5.32/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1627
  • GBP/USD: -0.2% to 1.3300
  • USD/CNH: -0.1% to 7.0619
  • USD/JPY: +0.6% to 156.83
• The Day Ahead:
  • 07:00 ET: MBA Mortgage Applications Index (prior -1.4%)
  • 08:30 ET: Q3 Employment Cost Index (Briefing.com consensus: 0.9%; prior 0.9%)
  • 14:00 ET: FOMC Rate Decision (Briefing.com consensus: 3.50-3.75%; prior 3.75-4.00%) and Summary of Economic Projections
  • 14:00 ET: November Treasury Budget (Briefing.com consensus: -$223.4B; prior -$284.0B)
  • 14:30 ET: Fed Chair Powell press conference